NEW YORK Reuters – The stock options timing scandal, which has already implicated at least companies, could include hundreds more, according to a new analysis that found lax enforcement of corporate governance reforms that should have prevented the practice. Beginning in August , the U. Securities and Exchange Commission required companies to disclose their stock-option awards in Form 4 filings within two days of options grants to comply with Sarbanes-Oxley. Before that, companies did not have to report option grants for several weeks. The new regulations should have removed most opportunities for backdating. But Glass Lewis, in the report, said the SEC has not enforced the two-day filing rule, possibly leading to many more instances of backdating. More than companies have launched internal reviews or are under government investigation over possible manipulation of stock option grant timing. Companies have said that many of the late Form 4 filings were unintentional — a result of sloppy paperwork— and their options grants have been accounted for correctly.
UnitedHealth and the scandal blame game
Chuck Grassley, chairman of the Committee on Finance, and Sen. The news reportsmake it sound like the CEO had the board of directors over a barrel and helped himself to whateverhe could get, even with the taint of stock options backdating allegations against him. Congress has a duty to the taxpayers to find out what happened at UnitedHealth, and figure out what to do to stop this flood of backdating scandals.
Scandal Enforcement at the SEC: The Arc of the Option Backdating (SEC) enforcement decisions in the context of the highly salient back-dating scandal.
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Stock option backdating scandal could grow: report
Yeah, neither do we. In recent weeks, this supposed national corporate stock options scandal has started to remind us of nothing less than the Duke lacrosse scandal — perhaps because in both cases the swarm of accusatory press coverage swirling around the developing story seems to have rapidly outpaced any actual proof of criminal wrongdoing. The current hubbub can be traced to an academic paper that a Norwegian economist in Iowa published last year in a seemingly obscure journal called Management Science.
That is, the grant date might be set to be an earlier date with a particularly low price. Over the past several months, short of actually proving chicanery, the Journal has suggested the possibility of chicanery at a long list of companies.
And after a year of multiple scandals for Grindr — including a By all accounts, should have been a record year for the leading gay dating app, “There are less problematic options out there, so I’ve decided to use.
Jacob “Kobi” Alexander has been on the run since , when the U. He is now living in Namibia and the U. Department of Justice said. The government had been trying to seize the holdings of two of Alexander’s investment accounts since he fled the country four years ago, but Alexander and his wife had been fighting the seizure. The practice of falsifying the date stock options were granted in order to make them more valuable to company executives was widespread in the technology industry over the past decade.
Around the time that Alexander fled the country, dozens of technology companies — including Apple, Broadcom and VeriSign — were forced to restate their financial results to take account of the backdating costs.
Option Backdating: The Next Big Corporate Scandal?
Fortune Magazine — It’s tempting to roll your eyes at the latest options backdating news – more evidence that in certain ways American executives are still the world’s most creative. But in fact it’s worth a closer look, because this type of conniving, which involves backdating exercise dates rather than grant dates, is different and in some ways worse. Bizarrely, while this book-cooking appears to be a tax scam, it may actually leave the U.
Treasury better off than if the executives had been honest. What it reveals most strongly is some executives’ utter contempt for their shareholders.
Walker, Unpacking Backdating: Economic Analysis and Observations on the Stock Option. Scandal, 87 B.U. L. REv. (). However, none of these other.
A new threat to the perceived propriety of American business has emerged in the wake of past financial scandals. Paul Worth, partner and head of fraud and asset recovery at Eversheds, explains why a number of major US companies are now under investigation by American authorities over their approach to granting stock options. The options backdating problem stems from a number of practices adopted when granting employee stock options. Stock options are generally granted to executives as an incentive.
They tie executive pay to shareholder returns by allowing executives to earn compensation equal to the difference between the stock price at the date of the grant, the strike price, and the stock price at the date the option is exercised. The executive therefore has an incentive to increase the company’s stock price so that the option can be exercised for a profit. Backdating has come to be used as an umbrella term, encompassing a number of activities, including:.
The practice is not necessarily illegal. If the company granting the stock options properly discloses the backdating at the actual time of the grant then no problem arises. However, the grant is referred to as a ‘discounted grant’ and will not qualify for the same beneficial tax treatment as standard, fair market value, options grants. In light of this, some companies seek to conceal the backdating by misrepresenting the position or falsifying documents, which is likely to be regarded by the regulatory authorities as an act of fraud.
The scandal broke when the Wall Street Journal discovered from Securities and Exchange Commission SEC filings that options grants were occurring in unusual numbers on days when the stock price was much lower than normal, and in particular on the day with the lowest stock price in the fiscal year. This precipitated a wide-ranging investigation, which has so far led to as many as public US companies coming under SEC scrutiny.
Options backdating is the process of granting an employee stock option ESO that is dated before its actual issuance. In this way, the exercise strike price of the granted option can be set at a lower price than that of the company’s stock price at the granting date. This process makes the granted option ” in the money ” ITM and therefore of greater value to the holder. The practice of backdating options has been considered unethical and is now the subject of regulatory scrutiny, making it far less widespread in recent years.
The practice of options backdating first occurred when companies were only required to report the issuance of stock options to the SEC within two months of the initial grant date.
The options backdating problem stems from a number of practices adopted when granting employee stock options. Stock options are generally.
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Ex-Comverse CEO to Forfeit $46M in Backdating Scandal
This was one of many options backdating scandals to occur within the last decade. To prevent similar fraudulent activity in the future, Apple should take measures to increase consequences for bad behavior or incentivize whistle-blowers. Options backdating consists of granting an option that is dated prior to the date the option is actually granted.
It allows the grantee to receive options that are already in the money, which allows him or her to glean a much higher profit. Apple admitted to granting backdated options on 15 dates between and 2.
How Jobs dodged the stock option backdating bullet. Tobak’s take on Steve Jobs’ role in the stock options backdating scandal at Apple.
NEW YORK Fortune — In every big corporate scandal, a company must make a decision about where to draw the line: Who to throw under the bus, and who to place in the driver’s seat. McGuire “. But the corporate blame game is almost never a black-and-white matter. Deciding who stays and who goes requires a tricky combination of weighing: 1 the facts; 2 the likely impact of firings on the company’s operations and on Wall Street; and 3 the reaction of the feds, who may treat the company with greater or lesser kindness in their own investigations, based on their assessment of how fully the company has cleaned house.
Here’s a closer look at how UnitedHealth Charts , Fortune weighed in on these tricky issues – and why. Like McGuire, Hemsley received millions of backdated stock options – in fact, he got one grant dated before he even started work at the company. And like McGuire, he received a huge windfall with the dubious decision to “suspend” two million executive options, replace them at a lower and apparently backdated price, then “reactivate” them 10 months later.
Hemsley also faced a similar conflict of interest as McGuire, in retaining UnitedHealth director William Spears, chairman of the board’s compensation committee, to manage a chunk of his personal fortune. UnitedHealth’s outside investigator, former SEC enforcement chief William McLucas, notes in his report that internal controls involving broad options grants to thousands of employees were “inadequate” and “senior management failed to ensure that the options granting practices were appropriate.
UnitedHealth’s HR department, as a matter of policy, for years awarded grants to new and promoted employees that were backdated to the lowest stock price of the quarter. McLucas found that “these practices were followed openly in the company, at least within the HR organization. As the hierarchy’s detail man, with responsibility for HR, legal and other administrative realms at UnitedHealth, shouldn’t he have known that the options-granting process at the company was rife with problems – and been attuned to the issues involving executive grants?
Not necessarily, according to the company. McLucas concluded that Hemsley deferred almost entirely to McGuire on the critical matter of dating stock grants – that McGuire, as one person involved in the mess put it, “owned” the process.
Before Lehman Brothers imploded, before Bernard L. Karatz, the former chief executive of KB Home , to five years of probation. His case is likely to be the last criminal trial relating to backdating, a scandal that ensnared dozens of executives over allegations that the dates of stock-option awards had been manipulated to enrich recipients. When the first cases emerged in , they looked like low-hanging fruit for federal prosecutors.
The Securities and Exchange Commission and the Justice Department investigated more than companies.
Ex-CEO of investment giant Pimco given longest sentence to date in college admissions scandal. Former Pimco CEO Douglas Hodge, center.
Washington, D. Anderson, of Atherton, Calif. Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, stated, “The Apple case demonstrates the Commission’s ongoing commitment to take action against stock options backdating and other executive compensation abuses. When corporate officers enrich themselves at the expense of a company’s shareholders, the Commission will hold the responsible individuals accountable, particularly where, as here, the responsible individuals are among those obligated to ensure that the company complies with all applicable securities laws and that its financial statements are accurate.
Marc J. Fagel, Associate Regional Director of the SEC’s San Francisco Regional Office, stated, “Apple’s shareholders relied on Heinen and Anderson, as respected legal and accounting professionals, to ensure the accurate reporting of the company’s executive compensation. Instead, they failed in their duties as gatekeepers and caused Apple to conceal millions of dollars in stock option expenses.